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Is your organization on the right side of the law?

Today’s post comes from James Gilmer, a compliance specialist for Harbor Compliance, which establishes 501(c) nonprofits and helps them stay on the right side of regulations. James also serves on the Board for two nonprofits in Lancaster, Pennsylvania.

I’ll grant you compliance isn’t the sexiest topic. But it helps prevent the scammy fundraising that hurts us all. It’s important for the health of your organization and for the trusting relationship you want with your donors.

Why Compliance is Important for Your Donors and Fundraisers

Far too often, nonprofits believe they can fundraise limitlessly just because they have been granted 501(c)(3) exemption from the IRS.

The reality is that fundraising is highly regulated at the state level. Both charitable organizations and professional fundraisers must comply with state registration requirements before soliciting funds themselves or on behalf of an organization.

What is Compliance?

Forty-four states have laws surrounding charitable solicitation for nonprofit organizations, and forty-one have unique charitable solicitation registration requirements beyond federal tax exemption. These registrations involve annually filing financial, program, and leadership information with the state Attorney General or Secretary of State Charities Division. In some cases, it means registering with the state Corporation’s Division and appointing a registered agent as well.

“Compliance” means whether you are a professional fundraiser or a nonprofit organization, you file the appropriate registrations on time and stay on the right side of the law.

I Love Giving to Charity. How Does Compliance Affect Me?

Charitable solicitation laws serve to protect donors in a given state from unregulated or illegitimate charities. As a donor, you want to know the money you give is actually advancing the charity’s mission, and not going towards huge delinquency fees for noncompliance. Mississippi, for example, has a $50 registration fee, but can assess up to $25,000 for infractions.

Compliance demonstrates responsibility and reassures your donors their money is going to the right places.

It’s very easy to look up a charity in state charity databases. First time and experienced donors alike should check if an organization is registered, delinquent, or not registered at all. Also, in many states, you have access to the charity’s financial data there.

I Work/Volunteer for a Nonprofit. How Does Compliance Affect Me?

If you work or volunteer for a charity, it’s a safe bet you have a packet of materials in hand before you walk into a local business or meet with a prospective donor. With that packet, you share the gospel about your charity and who benefits from your work. In other words, you need to make a positive impact, and make your donors feel good about giving!

But, don’t forget proof of registration. Nothing takes away from your organization’s credibility like telling a prospect you aren’t registered or aren’t tax exempt and they can’t get a tax deduction. You’ll lose their trust faster than you can say “noncompliance.”

In the packet, include a copy of your organization’s IRS determination letter and evidence that your organization is registered to fundraise in that state. Expect a donor to ask anytime!

Side note: if you’re writing a grant, there’s a good chance “proof of registration” with the state charity official is on the foundation’s list of required documentation.

I’m a Professional Fundraiser/Fundraising Consultant. How Does Compliance Affect Me?

Have you filed your registration too?

That’s right, in most states, individual professional fundraisers, and consultants, as well as their organizations, must comply with applicable requirements if they solicit funds. You will typically file financial information, copies of contracts, and planned activity information with state authorities. Like the registrations for charitable organizations, they must be filed in each state where you solicit. They are renewed annually.

As a professional fundraiser or fundraising consultant, you may raise funds on behalf of an existing charity. You are the fundraising expert, and you add tremendous value to the organizations that hire you.

But remember your donors! They deserve to be reassured. Put their minds at ease, and show both you and the organization you solicit for are registered and compliant.

How Do I Know I Am Compliant?

Do your homework and to stay up to date on changing state and IRS requirements. Start by learning about your state’s requirements here with this nationwide Fundraising Compliance Guide.

Review your organization’s specific requirements, then file and stay current with your registrations. Remember, there are service companies that can help you with multistate fundraising registration management, and can provide expertise beyond government form preparation.

But let’s bring compliance back to what really matters: your donors. State penalties can be high. But the cost of losing the financial support and goodwill of your donors can be even higher.

Remember that properly registering your charity or professional fundraising firm ultimately is about protecting your donors, and reassuring them they are making a good investment in you and the community.

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Comments

Ah, don’t get me started on state regulations. For the most part, with a few exceptions on reporting, I think they are obsolete, do little to protect the public from the unscrupulous solicitors and are more about extracting funds from both charities and consultants. The reports and reporting around professional fundraisers perpetuate all that is simplistic and negative about the overhead myth.

Unfortunately, without a mass uprising, we are stuck with them. (Charity Defense Council are you listening?)

Given, that, thanks for this column. However, I want to expand on the registration requirements for both charities and fundraisers as they also often require registration in any state in which you are actively soliciting a donor, even if you are located elsewhere.

For example, I’ll bet that most nonprofits don’t know that if you are applying for a grant from a New York based foundation you are required to register in New York. Luckily the cost is only $25 a year. But not for the fundraiser counsel or fundraising solicitor – $800 a year.

I agree with Gayle’s comment. I would just like to underscore that registration does almost nothing to benefit the public. A nefarious fundraiser would most likely comply with registration requirements so as not to attract unwanted attention from the authorities. Furthermore, regulators do almost nothing with the filings of charities, professional solicitors, and fundraising counsels. For the most part, the forms are simply logged and filed. When a regulator gets around to actually doing his/her job to protect the public, it’s usually just to issue a warning. Once in a great while, a fine will be assessed, though it’s usually for a tiny sum. When headline-making cases are made, they have nothing to do with registration compliance; instead, the cases usually involve fraud.

As long as registration requirements remain law, we should make a reasonable effort to comply. However, the time has come to completely rethink the regulation of charities and the professionals who assist them. As it now stands, charity regulations do next to nothing to protect the public and, instead, divert precious resources from charitable mission fulfillment.

Well, I agree that the system ought to work differently, Michael. I would think that the vetting should take place earlier in the process – and the government should be very careful about who gets the nonprofit status.

In the meantime, I wouldn’t suggest taking the regulations lightly. Maybe it’s just me (I’m a worry wart), but even if it’s stupid, I’d want to be sure I’m all set, you know?

And I agree that there ought to be a better way! Thanks for your insightful comments, Michael!